Key Intermediaries in an IPO: Roles, Responsibilities, and Impact on the Public Offering

The transition from private to public trading through an Initial Public Offering (IPO) is a major milestone for businesses. It requires collaboration between several financial professionals to ensure both compliance and efficiency. This article explores the key intermediaries involved in IPOs and their crucial functions during the process.

1. Merchant Bankers (Lead Managers):

Proceedings for an initial public offering depend heavily on Merchant bankers and their roles as Book Running Lead Managers (BRLMs) in book-built issues. Companies involving merchant bankers operate through two portions of activities: pre-issue and post-issue responsibilities.

Pre-Issue Responsibilities:

• Ensure compliance with SEBI and other regulatory bodies.
• Submit the draft offer prospectus, which includes financial details, business information, and risk factors.
• Coordinate with registrars, underwriters, and bankers involved in the IPO process.
• Organize roadshows and marketing events to attract potential investors.

Post-Issue Responsibilities:

• The team executes fund management duties by supervising escrow account management processes that handle application funds correctly.
• The company decides the share valuation through market demand while distributing shares fairly to all applicants.
• The team processes both successful applicant allotment letters and ensures refund to all unsuccessful applicants.
• All relevant agencies undergo thorough supervision to guarantee proper adherence to established procedures and time requirements.

2. Registrars to the Issue:

An IPO depends heavily on registrars for managing the entire administrative design. Their primary responsibilities encompass:

• The IPO application processing unit receives all applications and performs an exact check of required information before it gets captured.
• They compile a final list of valid and eligible applications, removing any that are invalid.
• Together with the lead manager the registrar are in charge of determining the basis for the IPO allotment.
• They ensure that the shares allotted are deposited into the Demat accounts of the successful applicants and that refunds are issued to those whose applications were rejected.

3. Bankers to the Issue:

The role of bankers to the issue involves managing all monetary aspects related to initial public offerings for which they serve. Their key functions include:

• Confirmation of application and payment amount.
• Transfer of funds to the company’s promoters.
• Processing refunds for unsuccessful applications.
• Once listed on the stock exchange, the designated bankers will manage the payment of dividends to shareholders in accordance with the company’s declared distribution.

4. Underwriters:

Underwriters act as risk bearers who handle share distribution for initial public offerings of the company. Their primary responsibilities involve:

• The identification of potential risks and market-related returns components of the IPO forms part of the risk assessment process.
• Together with the issuing firm, the underwriter helps find an acceptable share price through determining an optimal amount between capital needs and market requirements.
• The Guarantee of Sale creates a safety mechanism by ensuring to acquire any unclaimed shares following the public subscription thus protecting the issuing company.
• Through their networks they distribute the underwritten shares to investors to achieve maximum distribution results and reduce inventory discrepancy.

Lifecycle of an IPO Process:

An IPO follows this quick series of steps in its life cycle:

1. The IPO initialization begins when the issuing company appoints:

• Lead manager
• Registrar of Issue
• Syndicate members

2. A draft IPO offer prospectus goes to SEBI for review through preparation by the lead manager. The issue receives promotional visits which form a part of the preparation activities.

3. SEBI reviews the draft offer prospectus which leads the lead manager to implement required changes. The acceptance of the draft prospectus from SEBI transforms it into an Offer Prospectus.

4. The lead manager then:

• The lead manager forwards the Offer Prospectus to stock exchanges and Registrar of Issue for their approval.
• Together with the issuing company the lead manager establishes both the dates of issue and the price range to invest.
• The date and the price band are entered into the prospectus. This is called the Red Herring Prospectus.
• The lead manager arranges printing of Red Herring Prospectuses and IPO Application Forms which distribute to syndicate members before reaching investors.

5. The launch of the IPO occurs while investors are allowed to place their bids.

6. The syndicate members acquire the stock exchange data from investors who send their bid information before delivering it to stock markets.

7. After the public issue closes the lead manager performs a final evaluation of the issue price using received bids. The lead manager both revises the final issue price within the Red Herring Prospectus then forwards it to SEBI as well as stock exchanges.

8. The registrar of issue:

• Receives the applications together with the funds from the syndicate members
• Checks the completeness and authenticity of the application forms
• The registrar of issue completes an allotment pattern through valid bidding information.
• Prepares the Basis of Allotment
• Transfers the shares to investors Demat account and ensures that refunds are issued to all rejected applicants.

9. After completing the procedure, the registrar enables the lead manager to determine the issue listing date jointly with the stock exchange.

10. Finally, the share is listed.

Conclusion

An IPO represents a significant turning point for businesses, enabling expansion and improving market standing. The process requires careful management by financial intermediaries, whose expertise ensures a seamless and successful IPO. Their coordinated efforts provide companies and investors with confidence and clarity throughout the journey.